Weekly forecast update, Dec. 17, 2021
Forecast updates
- Increased the Q1 2022 whey forecast
- Widened the 1H 2022 block-barrel spread by decreasing barrels.
- All changes increased milk prices for 2022.
Fluid Milk Market
Milk prices remain elevated – something that could prompt dairy producers to add milk should return surpass the additional cost of producing milk. But, that could still be months off as it will take time to add cows, adjust feed rations, etc., to achieve those results. Many reports that components are rising but that milk flow remains stunted. This week milk will begin to head to balancing plants as schools let out for the next few weeks. But, with Christmas and New Year’s holidays falling on a weekend could keep balancing less than the previous year.
Cheese Market
This week’s blocks averaged $1.9230/lb, 7.45₵/lb more than the previous week. Barrels averaged $1.652/lb, 2.25₵/lb less than the prior week. The markets moving in opposition widened the block-barrel spread this week to 27.1₵/lb. Sales remain strong heading into the end of the year with reports that exports and interest in exports remain positive. Albeit lower than this week’s average, all items that could support prices above the five-year average seem likely.
Domestic, commercial disappearance was 1.37% behind last year’s pace, with October’s totaling 1.1 billion pounds – it was the lowest for October since 2017 but still higher than the five-year average. Year-to-date domestic, commercial disappearance is still 3% ahead of the previous year. Exports helped offset some of those declines – but the slowdown explains the stocks build despite lower production. Still, given the difference between government buying programs this year and last year – that was a solid performance suggesting the market and more traditional buying programs are capable of absorbing new products. That level of buying continues to underscore that the Michigan cheese plant will no longer be incremental next year – that could result in above-average prices for a prolonged period.
Butter Market
Heinz-Kraft made the news this week, releasing an offer to pay a few thousand consumers $20 to make a holiday dessert without cream cheese. That confirmed the supply-chain issues. Shortly after, other reports stated that eggnog was also in short supply ahead of the holidays. All news seemingly confirms more robust butterfat demand and why prices are higher headed into the end of the year. This week, CME butter prices averaged $2.0805/lb, up 2.05₵ compared to the previous week. Trading volumes remained elevated, with 42 loads changing hands this week.
October butter commercial disappearance at 200 million pounds. 3.6% less than last year. Exports were higher, but so was imported butter that month. Compared to the previous year, lower production would suggest a good-sized slowdown than the last three October – resetting to 2017 levels. The previous year’s retail butter sales were 7.4% higher than 2019 – that would be a difficult feat to repeat given no lockdown and more people moving around this year. Still, YTD commercial disappearance is running just 0.29% behind last year’s pace through October – a solid performance as it was the most significant level of consumption in the previous three decades.
NDM/SMP
CME NDM prices continued to push to the upper-160s this week. That continues to close the gap on EU-27 prices; however, reports suggest EU processors are mostly sold-out through Q1, so that could be allowing US exporters to book more sales at higher prices. At the same time, reports indicate that buying from China remains somewhat quiet and that EU product is trading within the country below GDT levels. Most will be keeping a watchful eye on the final GDT of the year next week. Reports from New Zealand suggest milk could remain behind last year’s levels through January 2022.
US NDM commercial disappearance in October jumped higher to 105.6% more than the last year. Still, year-to-date commercial disappearance runs 20.9% behind the previous year’s pace. Given the cost of NDM compared to condensed skim or even Class III milk, that is likely to persist well into next year. In most years, the domestic market absorbs 800-900 million pounds of NDM. If the current pace continues through the end of the year – domestic consumption may be closer to 650 million pounds – the lowest in decades. That may suggest NDM in private hands that permitted others to whittle back stockpiles. Cheese producers likely acquired inexpensive milk in the spring instead of low-cost NDM.
Whey & Lactose Products
On Friday, CME whey jumped up to 73.0₵/lb, lifting the average to 71.6₵, up 1.25₵ from the previous week with 11 trades – a good-sized change from the last week. Dairy Market News (DMN) Central prices continue to increase with the mid-point of the mostly at 66.25₵ this week – up 1.07₵ – the western mostly was 67.63₵, up 1.13₵. That suggests that NDPSR whey prices will continue to lift for several weeks, which will drive higher Class I and III prices. That is consistent with CME whey futures that project prices have not yet reached their apex.
China’s November 2021 policy targeting 50% of infants between 0-6 months to be fed only breast milk could profoundly impact infant formula imports and ingredients later next year. China’s infant formula imports through October are down 26% compared to last year. Currently, only 13% of infants between 5-6 months of breastfeeding could be a significant turnaround weighing on the whey markets.